Embed Size (px)
Citation preview
Competitive Pricing
Strategies
Maximizing Margins
Staying Competitive
Presenting Attractive Prices
C. Scot Frink, MS
www.SalemAudiologyClinic.com
(Disclaimers)
• This presentation is not an attempt at price-fixing
• For owners, it is a means of self-analysis (not psychoanalysis)
• For employees, it helps you to understand just how much it really takes to run an office
Your practice is only good for
your patients if you can keep
your doors open • Hearing care professionals are extremely well-qualified for
taking care of their patients.
• They do, however, sometimes have difficulty discussing costs with patients—one of the biggest stumbling blocks.
• Audiologists are university-trained as clinicians, not as business people.
• Hearing instrument specialists rely on the training of their mentors.
• For both professions, understanding business comes from previous experience or with time.
Goals For This Presentation
• Understand the needs for margins
• Analyze different pricing strategies
• Learn “new” methods of presentation to your clients.
What Are The Typical Costs of
Operation?
• Payroll and Taxes—Professional & Support Staff
• Rent & Utilities
• Merchandise for Resale
• Licenses, dues, insurance
• Supplies & Equipment
• Advertising Costs
• Everything else
• Stress, mental health, marriage if you don’t do it right
Payroll & Taxes: Professional Staff
• Median pay for a hearing instrument specialist in 2010 was $46,780 (or $22.49 hourly)
• Median pay for an audiologist in 2010 was $66,660 (or $32.05 hourly)
• Adjusting for inflation, this is likely 3.5% higher.
– $48,431
– $69,013
*US Bureau of Labor Statistics, 2010
Payroll & Taxes: Support Staff
• Hearing clinics typically have at least 1-3 additional staff members to support the audiologist. Some of the support staff and their respective salary and benefit packages may include:
– Receptionist ($20,000 - $30,000 + $4,000 benefits)
– Office Manager ($30,000 - $40,000 + $6,000 benefits)
– Billing clerk ($20,000 - $30,000 + $5,000 benefits)
– File Clerk ($10,000 - $20,000 + $4,000 benefits)
– Repair technician ($20,000 - $35,000 + $5,000 benefits)
– HIS offices typically had smaller support staffs than audiology clinics
From 2003 survey of 11 offices in Oregon and Washington
Payroll & Taxes
• Taxes
– Payroll taxes amount to approximately 7.62% over and
above the wages of the employee
• i.e., about $5,000 per year for the average audiologist
• about $2,500 per year for the average support staff
• If you earn $4,000 per month, it costs the office $4,300 to pay
you!
– Corporate Income Taxes
– Local Taxes & Fees of Operation
Rent & Utilities
• Rent
• Electrical
• Telephone
• Water
• Internet
• Other?
Merchandise for Resale
• Hearing Aids
• Batteries
• Cleaning & Maintenance Supplies
• Repairs
• Assistive Listening Devices
• Merchandise not related to hearing loss
Licenses, Insurance, Dues
• Professional licensing (state & local)
• Business license
• Insurance: malpractice, property, liability
• Business & Equipment Insurance
• Professional Association Dues (IHS, State, etc.)
• Subscriptions
• Conference fees for continuing education
Supplies & Equipment
• Office Supplies
• Technical equipment (Hi-PRO, Diagnostic
equipment, verification measures, etc.)
• Annual Calibration Expenses
• Computers & maintenance
• Telephones
• Furniture
• Postage
Advertising Costs
• Generally agreed that 5-15% of gross
income should be spent on advertising.
• Higher for start-ups
• Lower for well-established practices—that
don’t want to grow.
Review: Annual Cost of Operation
Median Annual Income Generated
• Solo Professional Offices: $411,000 per year
• Multi-Professional Offices: $740,000 per year
• Multiple Location Offices: $1,441,000 per year
*2011 Phonak Benchmarking Survey
This is just how much it costs to
operate!
How do you make a profit?
Sources of Revenue
• How much do you need to earn to keep the
doors open?
• Billable Hour Concept:
– Patient Contact Hours, per year: 1,500
– Billable Hour for a 3-practitioner office:
• Annual cost of $900,000 per year
• Billable Hour = $900,000/4,500 hours =
$200 per hour
Identifying Your Sources of Revenue
• Primary Source of Income: Treatment – ENT Clinics: surgical procedures
– Audiology Clinics: hearing aids
– Dispenser Offices: hearing aids
• Secondary Source of Income: Diagnostics (audiologists & ENTs)
• Tertiary Sources of Income: Support Merchandise & Services – Repairs & Earmolds
– Assistive Listening Devices
– Reprogramming & Fitting Evaluations
– Services & Products unrelated to Rehab
Methods of Pricing Hearing Aids
• Unbundled vs. Bundled Pricing
– Unbundled: cost is lower and patient pays for services with each visit
• Advantages: makes initial cost lower to patient and therefore more competitive on the marketing side
• Disadvantages: patients may be reluctant to follow-up
– Bundled: Most or all costs included in instrument purchase
• Advantages: little or no additional costs for the patient, which makes them more likely—and committed—to follow through.
• Disadvantages: higher up-front cost may make it more difficult to compete
Methods of Pricing Hearing Aids
Concepts:
• Unbundled vs. Bundled Pricing
• Cost of Goods multiplier
• Mixed Method
• Flat rate fitting fee
• Grouped pricing (tech levels)
• Prestige Pricing
Unbundled vs. Bundled Pricing
• Bottom Line: “The Is No Such Thing As A Free Lunch”
– Invoice cost plus hourly rate (medical model)
• Hearing evaluation & consultation, $200
• Fitting fees and follow-up visits (2-3 hours = $400 - $600)
– Average Invoice Costs • Economy: Invoice @ $250 $1,100 - $1,300 binaural
• Basic: Invoice @ $550 $1,700 - $1,900 binaural
• Advanced: Invoice @ $850 $2,300 - $2,500 binaural
• Elite Level: Invoice @ $1,250 $3,100 - $3,300 binaural
• On-Going Services: $200 per hour
• Batteries & Supplies are separate
Unbundled pricing
• Strengths: – Exactly reflects the effort you’ll put into the instruments
– Lower up front cost is very attractive to the patient
– Because of competitive pricing, primarily sell high-end
– Higher overall volume of sales
• Weaknesses: – Patient may feel they are being “nickel and dimed” (Franklined?)
with each visit and likely to grow reluctant to return, less loyal.
– Practice will have to have excellent cash flow, loyal patients, and / or other sources of revenue (i.e. ENT surgical income) to be successful
Cost of Goods Multiplier
• Bottom Line: “Free service leads to loyalty”
• Invoice cost x 3 most common (tradition?)
– Average Retail Costs • Economy: Invoice @ $250 $1,500 binaural
• Basic: Invoice @ $550 $3,300 binaural
• Advanced: Invoice @ $850 $5,100 binaural
• Elite Level: Invoice @ $1,250 $7,500 binaural
– On-Going Service: Included for life of aids
– Batteries & Supplies may or may not be included
Cost of Goods Multiplier
• Strengths: – Patient has less fear of being charged when service is needed ( =
greater patient loyalty).
– Better cash flow since your receiving payment in advance for services to be rendered in the future
– Less need for other sources of income.
• Weaknesses: – Doesn’t necessarily reflect the effort you’ll put into the instruments
(high-maintenance vs. low maintenance)
– Higher up front cost is less attractive to the patient
– Greater diversity of technology sold since costs are higher, lower overall volume of sales
– Cheap aids very cheap, expensive aids very expensive
Mixed Methods
• Bottom Line: “Everything in Moderation”
• Invoice cost x 2 plus a base fitting fee ($600 ea.?)
– Average Retail Costs • Economy: Invoice @ $250 $2,200 binaural
• Basic: Invoice @ $550 $3,400 binaural
• Advanced: Invoice @ $850 $4,600 binaural
• Elite Level: Invoice @ $1,250 $6,200 binaural
– On-Going Service: Included during warranty, additional if out of warranty
– Batteries & Supplies included for limited time or specific quantity
Mixed Method
• Strengths: – Moderates price range (cheap not too cheap, expensive
not too expensive
– Patient has less fear of being charged when service is needed ( = some patient loyalty).
• Weaknesses: – Doesn’t necessarily reflect the effort you’ll put into the
instruments (high-maintenance vs. low maintenance)
– Prices are competitive, but still higher than unbundled.
– Greater diversity of technology sold since costs are higher, lower overall volume of sales
– Still some need for other sources of income.
Flat Rate Fitting Fee
• Bottom Line: “Everything gets the same service”
– Average the costs of services over a year and add to invoice for flat service to everyone
• Billable hour @ $200 x 7.5 hours = $1,500
– Average Retail Costs • Economy: Invoice @ $250 $1,750 monaural, $2,000 binaural
• Basic: Invoice @ $550 $2,050 monaural, $2,600 binaural
• Advanced: Invoice @ $850 $2,350 monaural, $3,200 binaural
• Elite Level: Invoice @ $1,250 $2,750 monaural, $4,000 binaural
– On-Going Service: Included during first year only, then additional if out of warranty (@ $200 per hour)
– Batteries & Supplies: Included for first year? (add $100 ea.)
Flat Rate Fitting Fee
• Strengths: – All patients can be treated the same since each one generates the
same level of revenue.
– Lower up front cost for binaural fittings is attractive to the patient
– Because of competitive pricing, primarily sell high-end
– Good overall volume of sales, higher binaural rate.
– Improved cash flow over true unbundling.
• Weaknesses: – Less competitive for monaural entry-level
– Possible “nickel and dime” after the first year, less loyal.
– Still possible need for alternative revenue sources.
“Grouped Price Structure” Method
• Prices are arbitrarily assigned for all manufacturers based on
technology level
• On-Going Service Costs: Included in price to the end of the
warranty.
BTE ITE ITC CIC
Economy $850 $800 $900 $1,100
Entry-Level $1,650 $1,600 $1,700 $1,900
Mid-Range $2,450 $2,400 $2,500 $2,700
Elite $3,250 $3,200 $3,300 $3,500
“Grouped Price Structure” Method
• Strengths: – Simpler system for hearing professionals
– Simple system for presenting to patients
– Only 16 prices to consider; easier to memorize
• Weaknesses: – Does not take into account the wide variety of prices available
from manufacturer to manufacturer, discounting programs, etc. (it ignores the actual invoice cost)
• Example: One manufacturers mid-range digital may cost $400, while another’s costs $500.
• In this case a $100 price difference will either lead to losses in some situations or unfair bias in others.
The Prestige Method
• Bottom Line: “Charge a premium because you’re worth it.”
– Cost of Goods Method (Invoice x3)
– Add in full services • “Batteries for life of instrument” (10 years = $500 value)
• Longest Warranty available (4 years = $600 value)
• Free annual hearing screenings ( 5 years = $100 value)
– Average Invoice Costs • Economy: $250 $1,999 monaural, $3,998 binaural
• Entry-level: $500 $2,749 monaural, $5,498 binaural
• Mid-Range: $850 $3,749 monaural, $7,498 binaural
• Elite Level: $1,250 $4,999 monaural, $9,998 binaural
• On-Going Service Costs: Included for the life of the product
The Prestige Method
• Strengths: – Patient has no fear of being charged when service is needed ( =
greater patient loyalty).
– The highest cash flow since your receiving payment in advance for services to be rendered in the future
– Less need for other sources of income
– You can be very selective about the patients you see
• Weaknesses: – Doesn’t really reflect the effort you’ll put into the instruments
(high-maintenance vs. low maintenance)
– Higher up front cost is less attractive to the patient, less competitive.
– Greater diversity of technology sold since costs are higher, lower overall volume of sales
– Perceptually, all aids are expensive.
Methods Comparison
Invoice
Cost:
$250 $500 $750 $1,000 $1,250
Unbundled $1,100 $1,600 $2,100 $2,600 $3,100
COG x3 $1,500 $3,000 $4,500 $6,000 $7,500
“Mixed”
Method
$2,200 $3,200 $4,200 $5,200 $6,200
Flat Fitting
Fee
$2,000 $2,500 $3,000 $3,500 $4,000
Prestige
Method
$3,998 $5,498 $6,998 $8,498 $9,998
Understanding Manufacturers
Discounts
• Types of Discounts
– Volume Discounts: requires commitment on your part (ethical dilemmas?)
– Business Development Funds: offered if you follow-thru on your volume commitment (i.e. the rest of your discount—ethical dilemmas?)
– Advertising Co-ops: reimbursement for advertising costs
• Coupon reimbursement
• Product commitments
– Equipment Co-ops (product commitment)
– Promotional offers
Understanding Manufacturers
Discounts
• A 30% volume discount is not necessarily
better than a 20% volume Discount:
• Example:
Brand X Brand Y
Single Unit Price $550 $375
Discount 30% = -$90 20% = -$75
Total Cost $385 $375
Understanding Manufacturers
Discounts
• Factor in all discounts to find your true invoice
• Example #1:
Brand X 6-channel Brand Y 6-channel
Single Unit Price $795 $795
Discount 30% = -$239 20% = -$159
Advertising Co-op 0 -$50
Invoice $556 $586
BDF $0 $58
Real Cost $556 $528
COG Retail (x3) $1,675 $1,600
Understanding Manufacturers
Discounts
• Make sure you’re comparing apples
• Example #2:
Brand X 4-channel Brand Y 6-channel
Single Unit Price $795 $795
Discount 20% = -$159 20% = -$159
Advertising Co-op -$50 -$50
Invoice $586 $586
BDF $58 $58
Real Cost $528 $528
COG Retail (x3) $1,600 $1,600
Understanding Manufacturers
Discounts
• Advertising Co-ops:
– Annual advertising costs for a medium office = $80,000
– 3 full-time Practitioners likely sell 600 hearing aids per year
– Cost of advertising per hearing aid = $133 each
– Theoretically, you could therefore lower the price of all your hearing aids across the board by $133 each if you did NO advertising, but who is willing to take that chance?
– Many manufacturers offer co-oping of advertising to help cover these costs
Understanding Manufacturers
Discounts
• Advertising Co-ops: – Coupon co-ops: product is reimbursed as you order it
• Advantage is that you’re not fully committed towards ordering their product
• Disadvantage is the it takes longer to recoup the co-op
• Makes the most sense to advertise the product or brand you have had the most success with and are most likely to order anyhow
– Product co-ops: your pre-purchase a certain quantity of products depending on the amount of co-op (i.e., $2,400 co-op with a commitment to purchase 18 top-end instruments over the next 3 months)
• Advantage: manufacturer typically pays all the advertising cost immediately, which improves you cash flow
• Disadvantage: may lead to an inappropriate bias to “get out from under the commitment”
• Makes sense if you will definitely order that quantity of products before the deadline
Understanding Manufacturers
Discounts
• Equipment Co-ops: Requires unit commitment
– New Visible Speech System= $5,000
– Single Practitioners likely sell 200 hearing aids per year
– Raise the price of each instrument by $25 each to cover the cost of VSS?
– Manufacturer may be willing to co-op $50 per instrument ordered to help defray the cost of the VSS.
Understanding Manufacturers
Discounts: Promotions
• “Order 6 BTEs and get an additional 10% discount”
• “Order a coupon book for 10 circuits and get the circuits at ½ price”
• “Order 90 top-of-the line digital instruments at single unit price over the next 6 months and get a 10-day trip for 2 to Ireland”
• “Order a pair of mid-range digital BTEs and get $500 in traveller’s cheques”
• Always avoid offers that:
– Put you in an ethical conundrum
– Make no sense for your business
Understanding Manufacturers
Discounts: Promotions
• 6 BTEs @ +10% off, coupon for ½ price circuits: – If you order enough of these on a regular basis, stock up.
• “Order 90 top-of-the line digital instruments at single unit price over the next 6 months and get a 10-day trip for 2 to Ireland” – How does this make sense? If the SUP is $1250 and your normal discount is
20% off, you’ll be paying $22,500 for this trip!!!
– Big-time ethical problems
• “Order a pair of mid-range digital BTEs and get $500 in traveller’s cheques” – If they are instruments you regularly order, why not?
– Ethically, you should use the cheques to defray other office expenses (i.e. office supplies, etc.)
Service Charges
• What Do You Charge?
• Time Is Money
• Settle on a fee schedule and stick to it
• Adjust it for cost of living accordingly
• Keep it reasonable, or they won’t come back
Service Charges
• Do You Charge?
– Competitors may offer “free” evaluation, but
someone somewhere is really paying for it.
– Your education and experience is worth
something. Otherwise, all you ARE just a
salesperson selling a product.
– You aren’t. You are a medical professional
providing on-going treatment.
Service Charges: In-Office Repairs
• For in-office repairs, charge an hourly rate; again, time = money.
– Billable hour $200
– Most in-office services can be completed in 15 minutes or less = $50 (???)
– Some offices don’t charge for the basics (cleanings, battery doors, retubing, etc.) and a lower charge for more extensive services ($60/hour rather than $200)
– In some cases, it is a judgment call use common sense.
Service Charges: Factory Repairs
• For factory repairs, a few different options:
– Simplest way is to double invoice cost
• Can become quite costly for the high-end instruments, remakes
– Invoice + fee for processing repair
• Billable hour over invoice (30 minutes = $100?)
• For recase situations, add a charge for the time taken for impressions and future buffing (i.e. an additional $50 for additional 15m)
• Less for billable hour if non-professional processes?
• Services included under warranty?
Service Charges: Earmolds
• Remember to cover all of your costs
– Professional wages = $25-$35 per hour
• 30 minutes for EMI & order write-up
• 30 minutes for fitting
• Billable hour = $200 (???)
– Cost of earmold = $20.00 - $45.00
– Total cost = $45.00 - $70.00
– Margin for overhead?
– Billable hour over invoice? $245 - $270?
Comparing to the Competition
• How do you compare?
– What are your strengths and weaknesses?
– What are their strengths and weaknesses?
– Are they really “bad guys”? Watch what you
say
– It is SERVICE and RELIABIILITY that keeps
them coming back
Comparing to the Competition
• Price Shoppers
– Show them how to shop (apples to apples)
– Get impressions
– Give written price quotes
– Build a relationship
– Don’t worry
• Call and compare
Presentation to the Patient
• Methods
– Price written on a brochure
– Written price quote—fill out a form
– Professional presentation:
The Price Quote System©
Questions
These presentations slides will be available to download at
ihsinfo.org/convention
Please complete
an Evaluation Form for this seminar
Contact Information
• C. Scot Frink
• (503) 588-1039
